Patrick Cannon’s article ‘Ridgway, SDLT and s 75A: HMRC giveth and taketh away’ (Tax Journal, 20 January 2023) makes important points, including procedural unfairness. The judge determined the appeal on a ground that was not argued by HMRC during the enquiry or in the appeal hearing. Patrick states that the decision appears to have been procedurally unfair, even if the judge reached the right answer in relation to s 75A (the relevant provision used to determine the appeal). I believe that the judge reached the wrong answer in relation to s 75A. If I am right, this throws the point into sharp relief and narrows the ambit of s 75A.
The facts in Ridgway [2022] UKFTT 412 (TC) are set out in Patrick’s article. The salient point is that the judge disregarded the grant of the commercial lease to compare the SDLT that would be due on the notional transaction (calculated using the residential rates) with the SDLT paid on the real transaction (calculated using the non-residential or mixed rates). The judge referred to s 75A(4)(b), which states (my emphasis):
‘(4) Where this section applies—
‘(a) any of the scheme transactions which is a land transaction shall be disregarded for the purposes
of this Part, but
‘(b) there shall be a notional land transaction for the purposes of this Part effecting the acquisition of V’s chargeable interest by P on its disposal by V.’
The emphasised words are important. The instruction to disregard any of the scheme transactions which is a land transaction applies where s 75A applies. For s 75A to apply, the three conditions in s 75A(1) must be met:
‘(a) one person (V) disposes of a chargeable interest and another person (P) acquires either it or a chargeable interest deriving from it,
‘(b) a number of transactions (including the disposal and acquisition) are involved in connection with the disposal and acquisition (“the scheme transactions”), and
‘(c) the sum of the amounts of stamp duty land tax payable in respect of the scheme transactions is less than the amount that would be payable on a notional land transaction effecting the acquisition of V’s chargeable interest by P on its disposal by V.’
Subsections (5) and (6) apply to determine the chargeable consideration given for the notional transaction and the effective date of the notional transaction. This is necessary to apply the tax-saving test in s 75A(1)(c), but there is nothing in s 75A(1) or elsewhere in s 75A, explicit or implicit, to disregard any scheme transaction that is a land transaction to apply the tax-saving test. This conclusion is fortified by subsections (5) and (6). Were one to disregard a scheme transaction that is a land transaction to determine whether s 75A applies, this would mean disregarding the consideration given for it and its effective date, which might interfere with determining the chargeable consideration given for the notional transaction and effective date of the notional transaction.
The purpose of disregarding any scheme transaction that is a land transaction in s 75A(4) is to prevent multiple SDLT charges (i.e. an SDLT charge on the notional transaction and an SDLT charge on the scheme transaction that is a land transaction): only the notional transaction is chargeable and notifiable. It is not to determine whether s 75A applies.
Consequently, in Ridgway, the grant of the commercial lease should have been respected when determining whether s 75A applied. And, if it had been respected, the condition in s 75A(1)(c) would not have been met because the subject-matter of the notional transaction would have been the same as the subject-matter of the real transaction (mixed-use); so there would have been no need to go on to s 75A(4). Section 75A would not have applied.
Home >Articles > Section 75A: learning from Ridgway
Section 75A: learning from Ridgway
Did the judge reach the wrong answer on s 75A?
Patrick Cannon’s article ‘Ridgway, SDLT and s 75A: HMRC giveth and taketh away’ (Tax Journal, 20 January 2023) makes important points, including procedural unfairness. The judge determined the appeal on a ground that was not argued by HMRC during the enquiry or in the appeal hearing. Patrick states that the decision appears to have been procedurally unfair, even if the judge reached the right answer in relation to s 75A (the relevant provision used to determine the appeal). I believe that the judge reached the wrong answer in relation to s 75A. If I am right, this throws the point into sharp relief and narrows the ambit of s 75A.
The facts in Ridgway [2022] UKFTT 412 (TC) are set out in Patrick’s article. The salient point is that the judge disregarded the grant of the commercial lease to compare the SDLT that would be due on the notional transaction (calculated using the residential rates) with the SDLT paid on the real transaction (calculated using the non-residential or mixed rates). The judge referred to s 75A(4)(b), which states (my emphasis):
‘(4) Where this section applies—
‘(a) any of the scheme transactions which is a land transaction shall be disregarded for the purposes
of this Part, but
‘(b) there shall be a notional land transaction for the purposes of this Part effecting the acquisition of V’s chargeable interest by P on its disposal by V.’
The emphasised words are important. The instruction to disregard any of the scheme transactions which is a land transaction applies where s 75A applies. For s 75A to apply, the three conditions in s 75A(1) must be met:
‘(a) one person (V) disposes of a chargeable interest and another person (P) acquires either it or a chargeable interest deriving from it,
‘(b) a number of transactions (including the disposal and acquisition) are involved in connection with the disposal and acquisition (“the scheme transactions”), and
‘(c) the sum of the amounts of stamp duty land tax payable in respect of the scheme transactions is less than the amount that would be payable on a notional land transaction effecting the acquisition of V’s chargeable interest by P on its disposal by V.’
Subsections (5) and (6) apply to determine the chargeable consideration given for the notional transaction and the effective date of the notional transaction. This is necessary to apply the tax-saving test in s 75A(1)(c), but there is nothing in s 75A(1) or elsewhere in s 75A, explicit or implicit, to disregard any scheme transaction that is a land transaction to apply the tax-saving test. This conclusion is fortified by subsections (5) and (6). Were one to disregard a scheme transaction that is a land transaction to determine whether s 75A applies, this would mean disregarding the consideration given for it and its effective date, which might interfere with determining the chargeable consideration given for the notional transaction and effective date of the notional transaction.
The purpose of disregarding any scheme transaction that is a land transaction in s 75A(4) is to prevent multiple SDLT charges (i.e. an SDLT charge on the notional transaction and an SDLT charge on the scheme transaction that is a land transaction): only the notional transaction is chargeable and notifiable. It is not to determine whether s 75A applies.
Consequently, in Ridgway, the grant of the commercial lease should have been respected when determining whether s 75A applied. And, if it had been respected, the condition in s 75A(1)(c) would not have been met because the subject-matter of the notional transaction would have been the same as the subject-matter of the real transaction (mixed-use); so there would have been no need to go on to s 75A(4). Section 75A would not have applied.
